Bernanke Focuses on Core Inflation Rate - A Mistake?

by: SA Eli Hoffmann

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Bernanke Defends 'Core' Focus

  • Summary: Fed Chairman Bernanke said controlling core inflation in the near term is the most productive way to contain overall inflation in the longer term. The Fed has been criticized for being overly optimistic on this matter in the face of rising energy costs. Critics say that focusing on core inflation, which doesn't account for food and energy prices, fails to address some of most important forces facing consumers. Bernanke said the Fed, in the short run, tolerates the pressure rising of energy prices. "Our objective is to make sure it doesn't pass though into other wages and prices — in other words, that there are not second-round effects."
  • Comment on related stocks/ETFs: Fund manager John Hussman has been unimpressed with the moderate CPI numbers of late, noting a disturbing expansion of the spread between intermediate and finished goods pricing. Bernanke has been accused by some of "pursuing a monetary policy of 'shooting from the hip,'" reacting to each market blip and economic number as it's released, instead of focusing on the bigger picture. David Fry has been an outspoken critic of the Fed's focus on the 'core rate' over the nominal rate, calling it 'the greatest fraud being promulgated by the government and Wall Street.'

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